Banks tighten lending standards amid rising credit growth

MANILA, Philippines — Philippine banks further tightened credit standards for loans to enterprises and households amid perception of stricter financial system regulations, the deterioration of the profile of corporate borrowers, and reduced tolerance for risks.

Zeno Ronald Abenoja, senior director of the Department of Economic Research of the Bangko Sentral ng Pilipinas, said the Q2 2018 Senior Bank Loan Officers’ Survey (SLOS) showed a net tightening of credit standards for corporate loans based on the diffusion index (DI) approach.

“Results based on the DI approach pointed to a net tightening of credit standards for the quarter, which was largely attributed by respondent banks to their perception of stricter financial system regulations, and deterioration of the profile of corporate borrowers,” he said.

The tightening, he explained, involved stricter collateral requirements, shorter loan maturity periods, and increased use of interest rate floors, reflecting the net tightening of overall credit standards for corporate loans.

On the other hand, using the modal approach showed credit standards for loans to both enterprises and households during the second quarter was broadly unchanged for the 37th straight quarter since the second quarter of 2009.

A positive DI for credit standards indicates that the proportion of banks which tightened their credit standards exceeds those that eased, while a negative DI indicates that more banks eased their credit standards compared to those that tightened.

On the other hand, the results of the survey are analyzed by looking at the option with the highest share of responses under the modal approach.

Abenoja said the survey showed a net tightening under the DI approach in the overall credit standards for households particularly credit card as well as personal or salary loans due to reduced tolerance for risk.

Using the modal approach, 94.1 percent of the respondents kept their overall credit standards unchanged for household loans.

Abenoja said results showed a net increase in loan demand across all firm sizes and all types of household loans except personal or salary loans.

He said the survey disclosed the net increase in corporate loan demand could be attributed to customers’ higher working capital requirements and improvement in outlook.

On the other hand, he said the net increase in loan demand from households was due to low interest rates and more attractive financing terms offered by banks as well as increased household consumption.

Over the next quarter, Abenoja said most of the respondent banks expect unchanged loan demand from both firms and households despite expectations of higher investment in plant or equipment and increased working capital needs as well as the low interest rates along with higher household consumption.

“However, a larger proportion of respondents expect overall demand for corporate and household loans to increase in the next quarter relative to those who indicated the opposite,” he said.